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29 November 2021 The on-line newspaper devoted to the world of transports 16:39 GMT+1

The LNG Shipping Market in 2001

2001 started as a truly innovative year for LNG shipping, with a record number of ships on order but ended with a hint of LNG "deja vu" when orders were cancelled along with new ships on order without firm employment and three firm commitments to Enron looking very doubtful.
So what happened?
The concept of short-term contracts and spot trading was fuelled with extraordinary high US gas prices (+$10 mmbtu in January 2001). The rush was on and an industry that had been shipping constrained, risked being stalled due to lack of newbuilding slots at the yards. By June 2001 it was almost impossible to have a choice of a yard for a 2005 delivery slot, and naturally prices started to rise.

The bright light of the year was the knowledge that this publication appears to be avidly read in Copenhagen when AP Moller finally joined the other big LPG players (Exmar and Bergesen) and ordered their first speculative LNG ship of the new millennium at Samsung!

Otherwise, it was a year that should have had great expectations for evolution but instead settled back into the LNG "status quo" mode hopefully only as a temporary relapse.

The fleet
The fleet was only increased by one unit taking the total active numbers to 128, but by the end of the year there was a total orderbook of 47 units although it had been up to 49 before BG cancelled one of its Samsung units and Tanker Pacific cancelled its very optimistic attempt to enter the specialised LNG "club". BG had previously negotiated the option to cancel its second ship at Samsung without penalty but it would seem that Tanker Pacific faced a $10 million penalty from Izar. This was perhaps a sharp reminder to shipowners trying to enter the "club" that subscription rates are high!
LNG carriers fleet as at 01.01.2002  
Small capacities from 18,000 to 50,000 cbm   16 ships
Medium capacities from 51,000 to 100,000 cbm:   15 ships
Large capacities above 100,000 cbm:   97 ships

We mentioned "deja vu" earlier and this was clearly demonstrated when El Paso chartered in four new Daewoo ships from Exmar. El Paso featured mainly in the collapse of the LNG industry in the U.S. in the early 80’s that resulted in ships being scrapped or mothballed for several years. With long-term plans to order more ships and ambitious floating re-gasification units planned, El Paso is clearly taking the new LNG wave seriously with hopefully better results this time around.

The tendency has been to order new large ships but one very small ship has been ordered in Japan whilst Gaz de France looks likely to order a new 74,000 cbm for its cross Mediterranean needs. Larger ships are also on the agenda with Tokyo Gas ordering a 145,000 cbm ship from Kawasaki Heavy Industries (KHI) and the Snohvit LNG project close to signing for three 147,000 cbm ships at Mitsubishi Heavy Industries (MHI), Mitsui (MES) and Kawasaki (KHI).

Perhaps the most significant issue in the present orderbook has been the re-emergence of the membrane technology. Out of the 47 ships on order 37 are membrane, or some 80 %. Potential future orders would suggest a swing back to Moss with a probable eight to be ordered in the first quarter of 2002, but there will be a new membrane system launched soon, CS1, that may prove very attractive. The CS1 should offer increased cargo capacity without increasing the external dimensions of the ship: that is once this industry’s reluctance to change is overcome.

LNG carrier fleet

The projects
2001 resulted in "more of the same" as far as projects are concerned with no new project launched yet much talk of expansion plans without any firm decision being made.

The Norwegian project, Snohvit, looked as if it may have received a final go-ahead before the end of the year, but government elections and new tax regimes caused a two-month delay. Project partners are eagerly awaiting the parliament decision, expected by 7th March 2002, to see if this ambitious project will finally fly. The high northern latitude of the site makes this plant an LNG engineer’s dream as he finally has cold water cooling!

Angola was raising expectations early in 2001 for a 2005 start up but by the end of the year this had slipped to 2007 at the earliest. No doubt the merger of Texaco and Chevron has caused some delay but the organisation of the proposed partnership with other oil companies in Angolan waters is the main reason. Any further delay for Angola could have long-term consequences as Nigeria may well surge ahead as the only real African LNG exporter and as Nigeria LNG seeks financial closing for trains four and five and talks of a new project near Escravos. War-torn Angola could suffer from wary financial investors who try to minimise risk exposure who could see Nigeria as a proven success story. Timing is critical for LNG projects to be successful, and missed commercial opportunities can cause years of delay.

Algeria continues in its usual format but there is talk of increased production, but LNG may have to give way to pipeline investment with a partnership that includes TotalFinaElf, proposing a second pipeline connecting Algeria and Spain. RasGas has started its expansion to service the Petronet LNG contract in India. Further expansion is planned for the Italian Edison contract which unlike the fob Petronet agreement will be ex-ship. The shipping contract for the Edison deal is now in the final stages of tender with five shipowners hoping to be lucky in securing a four-ship deal. Oman LNG was one of the projects suffering from the fall out of Enron’s Dabhol India collapse only months before the 20-year delivery contract was due to start. Indications of problems emerged early in 2001 when Enron was unable to receive due payment from the Maharashta State Electricity Board for electricity supplied from its Dabhol power plant (at that time fuelled by naphtha). The collapse of Dabhol also caused some concern to Mitsui OSK who had a LNG ship on order at Mitsubishi that was finally delivered in November 2001. This was the first example of old LNG "deja vu", with a ship ordered but no longer with a viable project. Fortunately a temporary (?) solution has been found with the vessel now chartered to Oman LNG for ex-ship deliveries to new short-term buyers for the lost Dabhol quantities. Abu Dhabi was also due to supply LNG to Dabhol, for smaller quantities, but little has been reported as to who or where these contract quantities will go. The western markets can absorb the LNG but the market price may not satisfy the exporter.

The first real LNG plant interruption in the industry’s history due to political unrest occurred early in 2001 when ExxonMobil shut down its Arun plant in Sumatra (Indonesia) due to terrorist activities in the area. The LNG buyers, however, hardly noticed the event as the other LNG plants in south east Asia were able to assist and service the contracts between themselves. The LNG "club" once again demonstrating its ability to offer its members the true benefits of "membership". Australia finally saw financial approval given for train four with expected start up in 2004. Japanese buyers are once again the main recipients of the gas, but no longer 

And 2002 ?
Perhaps the delayed innovations of 2001 will materialise in 2002. Gaz de France should order a new diesel electric powered vessel with the new CS1 membrane tanks: two new concepts in one vessel, a major step for the LNG industry. With a delivery of 2005 we may not see any other such orders until the new concepts have proven themselves but at least progress is being made. This lead may be accepted, as there has been great concern over recent years about the lack of trained steam engineers for the steam turbine plants. However, our word of caution is more towards the lack of trained LNG operators as with an existing orderbook of 47 ships with a possible 16 this year, we are looking to increase the number of LNG seafarers by about 1,500! Where are these people coming from?

Alternative sources of propulsion must be the main area of concentration for this decade as environmental issues assume greater global importance. LNG ships are the only vessels in operation today that consume an equivalent of about 180 tonnes per day: the oil industry stopped using turbines in the mid-70’s. The LNG carried may not offer any pollution hazard but the 5-6,000 tonnes of heavy fuel oil could, let us not forget that the cargo on board the ‘Erika’ was fuel oil

Shipping and Shipbuilding Markets in 2001


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